Black Monday: China stocks in sharpest fall since 2007

Investor sits anxiously at a stock exchange in Nanjing, east China's Jiangsu Province on Aug. 24, 2015. (XINHUA/Ji Chunpeng)

BEIJING, Aug. 24 (Xinhua) — China stocks nosedived on Monday with the benchmark Shanghai Composite Index dropping 8.49 percent to close at 3209.91 points, the sharpest decline since Feb. 27, 2007.

The smaller Shenzhen Component Index fell 7.83 percent to close at 10,970.29 points. The ChiNext Index, tracking China’s Nasdaq-style board of growth enterprises, lost 8.08 percent to end at 2,152.61 points.

Near 2200 shares tumbled by the daily limit of 10 percent.

Dominic Rossi, chief investment officer for equities at Fidelity, has been warning that the stock market crash is a symptom of a “third wave of deflation” that will leave few countries untouched and should deter the US and UK central banks from raising rates any time soon.

After the financial crisis of 2008 and the eurozone crisis of 2011, Mr Rossi said this rout has “many of the hallmarks” of a classic crisis in emerging markets.

“They always start in foreign exchange markets and in this one it’s been rolling its way through currency after currency.”

The emerging market crash of the 1990s led to “goldilocks” conditions in the developed world, lowering prices, whereas the current drop is “more of a double-edged sword” of price and volume shocks that will be felt around the world, Mr Rossi said.

While he thinks the crisis won’t completely derail the US or UK economic recovery, with a falling oil price likely to stimulate growth and the banks in better shape than in previous downturns, he expects the Federal Reserve and Bank of England to delay a rate increase – or else risk fuelling the deflationary forces already in action.

“I think it’s inevitable now that a contraction of supply in developing nations will be required to stabilise prices and a fall in global supply is unavoidable.”

His advice for investors is to step away from their broking account until the “ice age” of low inflation and rates starts to thaw.

“The best thing at the moment is to do nothing and just let, as it will do, the volatility subside. Anything you try to do now will almost certainly be wrong.”